NEW DELHI, (Reuters) – India’s stuttering economic reform programme faces a key parliamentary test this week on whether to let foreign supermarket chains such as Wal-Mart Stores set up shop, in a vote that could pave the way for further measures to revive the economy.
Prime Minister Manmohan Singh’s minority government bowed to opposition pressure last week in agreeing to a vote, ending days of deadlock in parliament and cheering investors who saw it as a sign of a renewed policy momentum to come.
News that the government agreed to a non-binding vote helped Indian shares climb to their highest in nearly 19 months and bolstered the rupee. But defeat for the ruling Congress party could see the currency tumble to 56 to the dollar from about 54, said Abhishek Goenka, chief executive at India Forex Advisors.
The government opened its doors to foreign retailers in September as part of a package of measures to stave off a looming credit rating downgrade, cut a swelling fiscal deficit and revive the country’s investment climate.
While it doesn’t need parliament’s approval, defeat would be embarrassing and the government would come under pressure to roll back a policy that critics say would squeeze existing retailers and cost jobs.
Whether or not the policy survives the vote will be a measure of the minority government’s agility in pushing its legislative agenda in the time it has left before a general election due in just over a year.
If Singh loses, it could also put at risk other reforms pending in parliament, including measures to inject foreign cash into the struggling pension and insurance industries. If he wins, it could hasten their passage and embolden the government to move ahead with plans including simplifying the tax system.
These are seen as key for reviving investment and slashing the fiscal deficit, one of the widest among major emerging economies. At 5.9 percent of GDP last year, India’s deficit earned it a warning from global ratings agencies that it could lose an investment grade rating for its sovereign debt.